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  • Confirming tax obligations are complete

    Check that all tax obligations are provided for before making a final distribution of the deceased estate's income.

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    Checklist for finalising the estate's tax affairs

    You have finalised the tax affairs of a deceased estate when:

    1. the date of death tax return for the deceased person (and any outstanding tax returns for previous years) has been lodged and finalised
    2. any other returns or information required to be provided by the deceased person have been submitted and finalised – for example, business activity statements
    3. the deceased estate is no longer earning any taxable income, and the deceased estate's last trust tax return, if one is required, has been lodged and finalised
    4. all tax liabilities have been paid
    5. you have reported any issues you have identified with the deceased's tax affairs and these have been finalised
    6. any credit amounts due the deceased person or the deceased estate have been claimed
    7. any business tax registrations held by the deceased estate have been cancelled – for example, their Australian business number, GST and pay as you go (PAYG) withholding registrations.

    Liability of the legal personal representative

    The legal personal representative (LPR) may be personally liable for any outstanding tax liabilities of the deceased estate and the deceased person.

    The LPR should ensure that all tax obligations have been met, or fully provided for, before making a final distribution of the deceased estate's net assets to the beneficiaries (or to a testamentary trust, if there is one).

    Certainty for deceased person's tax affairs

    We have issued a guideline that explains when an LPR who is managing a smaller, less complex estate can finalise the estate without concern they will incur a personal liability for the deceased person's tax.

    If certain conditions are met, and there is no fraud or evasion, the estate can be finalised without waiting for the expiry of the period we have for amending income tax returns.

    The conditions are as follows:

    • The LPR has obtained probate or letters of administration.
    • In the 4 years before the person's death, they
      • did not carry on a business
      • were not assessable on a share of the net income of a discretionary trust
      • were not a member of a self-managed super fund.
       
    • The estate assets consist only of
      • public company shares or other interests in widely-held entities
      • death benefit super
      • Australian real property
      • cash and personal assets such as cars and jewellery.
       
    • The total market value of the estate assets at the date of death was less than $5 million, and none of the estate assets are intended to pass to a foreign resident, tax exempt entity or complying super entity.
    • The LPR has met all tax obligations of the deceased person.
    • The LPR does not have notice from us of
      • a claim against the estate
      • our intention to review or audit the deceased person's affairs.
       

    The guideline applies only to the tax affairs of the deceased person. It does not apply to the tax obligations of the deceased estate – that is, to liabilities for the period after the death of the deceased person.

    Example: straightforward small estate

    Alfred died on 1 June 2020.

    The value of his estate is less than $1 million, made up of:

    • his main residence
    • shares in publicly listed companies
    • money in a bank account.

    Alfred had been receiving a pension for a number of years prior to his death, and fully franked dividends from his shares. He had advised the ATO in 2015 that he was not required to lodge further income tax returns.

    Yiannis is the executor of Alfred's will. He obtains a grant of probate in July 2020.

    From the information available to him, Yiannis determines that he does not need to lodge a date of death tax return for Alfred. Yiannis lodges a non-lodgment advice on 31 October 2020.

    As of 30 April 2021 (6 months after Yiannis lodged the non-lodgment advice), the ATO has not notified Yiannis that it intends to review Alfred's tax affairs. Therefore, the ATO considers that Yiannis does not have a notice of any claim relating to Alfred's estate.

    Yiannis can distribute the estate to beneficiaries without risk of personal liability for the deceased person's tax.

    End of example
    Last modified: 22 Dec 2021QC 67526